LINCOLN, Neb. (Nebraska Examiner) – Even with a major budget hole to fill, Gov. Jim Pillen says he remains “100% confident” that Nebraskans will walk away by early June with a balanced budget and additional property tax relief.
Property tax relief has been a staple for the first-term governor with agricultural roots, who said of his formal 2026 reelection decision: “It’s not if, it’s when.” Getting there will first involve wading through the projected budget deficit that has grown through the course of the 2025 legislative session due to a variety of factors.
“We have to get more competitive, not say, ‘Well, we need revenue,’” Pillen said in a one-on-one interview with the Nebraska Examiner last week. “We just got to stop spending. We have to say, ‘No.’ We have to focus Nebraska government on what needs to be done.”
Medicaid cost-sharing
Pillen places much of the blame for what was an initial $433 million projected budget deficit for the next two years on the state needing to pick up more of the share for Medicaid costs. Medicaid is the state and federal partnership to cover essential health care for low-income individuals and people with disabilities.
The state’s portion of those costs rose because of a decline in the state’s Federal Medical Assistance Percentage, or FMAP, the percentage at which the federal government covers state Medicaid costs based on a state’s average per capita income, which grew fast enough compared to other states that the federal share dropped.
The federal government must pay at least 50% of Medicaid costs, but Nebraska’s FMAP fell by 1.58% to 55.94%, which was among the sharpest drops nationally.
The FMAP decrease left lawmakers on the hook for nearly $300 million in the next two fiscal years, plus $55 million this fiscal year. And it could’ve been worse if not for the Arbor Day tornadoes last year, which granted Nebraska a “disaster-recovery adjustment.”
‘Not a shadow of a doubt’
While lawmakers have until May 15 to rightsize the budget, Pillen has eyes set on what comes after: additional property tax relief.
“We’ll get that work done. Not a shadow of a doubt,” Pillen said.
The task, just as it did last summer, again will involve proposals seeking to add sales taxes to goods and services that are currently exempt and on increasing “sin” taxes on vapes or cigarettes. All of those measures fell short in a Pillen-led special session last August.
None reached a floor vote during that session in the face of steady opposition.
This time around, the bills are Legislative Bill 169 and LB 170, from State Sen. Tom Brandt of Plymouth, and LB 712, from State Sen. Jana Hughes of Seward.
Brandt’s bills would add sales taxes to a series of 18 exempt goods and services, as well as to energy drinks and candy, the latter of which is likely to be taken out. LB 169 would also raise cigarette taxes from 64 cents to $1.36.
Hughes’ bill would increase the tax on electronic nicotine delivery systems, such as vapes, from 10% to 40%. The current tax on devices with 3 milliliters or less of consumable nicotine is 5 cents per milliliter.
A separate measure, Legislative Resolution 20CA, which would allow Nebraskans to decide whether to legalize online sports betting at the November 2026 election, fell short this spring. It could net an annual $32 million, according to sponsor State Sen. Eliot Bostar of Lincoln.
Pillen reiterated that he was “not going to stick my stake in the middle of the field” for sports betting and that if it passed, he would support it. However, he said, he would not advocate for it.
Opponents to Pillen’s plan, including State Sens. Danielle Conrad of Lincoln and Machaela Cavanaugh of Omaha, place the blame for Nebraska’s budget deficit squarely on state spending, particularly on growing property tax relief programs and on declining state revenues from income tax cuts. They are also among those who have said sales tax increases would just shift the tax burden, not lower it.
Conrad has blasted the budget deficit as “self-created,” fueled by Pillen-led “inequitable, unsustainable tax cuts for the largest corporations and the wealthiest individuals.”
Sales taxes and other revenue
Pillen quietly celebrated a milestone this year when, for the first time in 26 years, property taxes statewide decreased. While it was a $6 million decrease from a $5.3 billion total in 2024. It was significant after two historic increases in 2022 and 2023 of nearly $300 million in each.
Why the decrease? For the most part, it’s because the state took over nearly all of the property taxes paid to community colleges.
Pillen said he is pleased and “we’re working our tails off … but sure not satisfied.”
“In spite of the keyboard warriors saying we’re broke,” Pillen pledged that lawmakers would balance the budget. He committed to keeping property taxes flat — at $5.3 billion statewide — which will be a major task as it is local governments, not the state, that sets property tax rates.
Another part of the puzzle could be Hughes’ LB 303, which is stuck in the Education Committee but seeks to have the state take on more of the property tax load of local schools, which represent about half of all property taxes levied.
After the most recent special session, Pillen said he’s learned he has to communicate his plan in a “much simpler way,” focused on cutting spending, broadening the sales tax base and having the state fund, but not run, K-12 education. The final goal would require the state to repurpose existing property tax relief programs and about $1.6 billion in additional state tax revenue each year.
“We’ll keep pounding away at that,” Pillen said.
Part of the shifted strategy is letting lawmakers such as Brandt and Hughes lead the fight on “sin” taxes and sales tax exemptions rather than Pillen doing it himself, as he did before and during the special session.
Pillen pledged to go “toe to toe with anybody” who argues that sales tax exemptions, of which the state has more than 120, didn’t exacerbate property tax increases.
“It does nothing but put a ‘closed for business’ sign on Nebraska,” Pillen said.
Income taxes
Brandt also has LB 171, which would “pause” a planned decrease in the top income tax rate for top earners and corporations.
Pillen, echoing comments from the chairs of the Legislature’s Appropriations Committee and Revenue Committee, said that isn’t going to happen. He said the only way to attract and solve the state’s workforce challenges is to help businesses survive.
“I’m not signing off on pausing income tax,” Pillen said. “That’s a crazy thought.”
Lawmakers still might try, either through the budget over the next two weeks or through Brandt’s bills shortly after. State Sen. Jane Raybould of Lincoln has already filed amendments to Brandt’s LB 169 and LB 170 to force the conversation.
Under those amendments, the top tax rates would fall to 4.99% next year, rather than 4.55% before going down to 3.99% the following year.
On whether his plans would be sustainable, Pillen said his solution is continuing to run state government like a business and improving services to save money and find more cuts.
‘Something’s out of balance’
The free market-focused Platte Institute think tank has similarly tossed cold water on “pausing” income tax rate reductions. In a Monday announcement, Platte Institute officials said one way to help close the budget deficit without raising taxes or sweeping one-time dollars from various cash funds is to “freeze” the current levels of property tax credits given by the state at $162 million.
Michael Lucci, senior policy advisor at the Platte Institute, described the proposal as seeking the best return on investment, a “prudent and reasonable approach to just hold the line.”
Lucci said every dollar for income tax relief goes back to taxpayers, while property tax relief credits aren’t guaranteed to lead to savings, because local property taxes are determined by the local school districts that get the spending offset.
“We’re suggesting let’s just pause the credits for two years, see what the revenue stream looks like in a couple years,” Platte Institute CEO Jim Vokal told reporters. “But if we go down the road of changing the income taxes, cuts that were scheduled and promised or raising sales taxes, we’re actually passing along a tax increase to Nebraskans.”
Brandt, responding to the Platte Institute’s suggestion, laughed and said he thought it was funny, as property taxes continue to rise by nearly $300 million each year, except for the most recent year.
“Something’s out of balance,” Brandt said. “It just seems disproportionate to me, the cuts that we’ve done for income tax, for the benefits that we’re going to receive.”
Nebraska Examiner is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Nebraska Examiner maintains editorial independence. Contact Editor Aaron Sanderford for questions: info@nebraskaexaminer.com.
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